‘The Left’ and Public Choice Theory

The mention of public choice theory to those on ‘the left’ of politics can prompt a variety of reactions. Some are based on ignorance about the very existence of public choice economics as a theoretical perspective. This reaction was demonstrated to me following one of the first lectures I gave in my academic career. Having listened to me speak for an hour on the power of incumbent firms to ‘capture’ regulatory agencies an attending student who was an activist in the Socialist Workers Party asked me, ‘when did you become a Marxist?’ Needless to say, for someone who considers himself a radical ‘anti-Marxist’ I was taken aback by this approach! What the question exemplifies though is an attitude that is widespread in academic circles – the assumption that an interest in power imbalances that favour business interests must equate with one having leftist or socialist sympathies. The idea that there might be a classical liberal/free market understanding of ‘power relations’ as exemplified by public choice theory is a possibility that simply hasn’t occurred to this particular species of left-winger.

A second reaction is based on ‘avoidance’. This strategy is adopted by those who are aware of public choice arguments but see them as a direct threat to their most cherished ideas. So why is public choice theory such a threat? I think in part because it offers a more plausible account of ‘power relations’ than its neo-Marxist competitors. Public choice rejects the naive pluralist view that power is evenly distributed across interest groups by offering a non-Marxist account of elite power. Instead of assuming that large ‘classes’ such as ‘capital’ and ‘labour’ are the primary power players on the political stage public choice focuses on how individual incentives affect the capacity of different groups to organise and hence to wield power over others. Yes, business interests can be powerful – but not because they are businesses or because we live in a ‘capitalist’ society. Instead, they exercise power because in some sectors where there are a relatively small number of big players business interests may find it easier to overcome collective action/free-rider problems than other groups such as taxpayers and consumers-who find it much harder to form a cohesive political force. In more fragmented and diverse sectors by contrast ‘business interests’ often lack political clout – and may be less favoured than say labour unions or public bureaucrats with a monopolistic position in the state sector. From a public choice perspective there is no such thing as ‘business’ and ‘labour’ per se. Rather, there are different types of business and labour interest the political success of which depends on the specific incentives and organisational problems facing the actors concerned. As such, public choice offers a more empirically compelling account of the varied special interest outcomes we observe in democratic polities than simplistic theories of ‘class rule’.

A further reason why many on the left see public choice as a threat to their ideals relates to its’ solution to the problem of special interest power. If the interventions of the state are often captured by corporate special interests -as many left-wingers seem to think they are – then how will social democratic efforts to give the state even more discretionary powers to intervene in markets do anything to undermine the power of these interests. Marxists would, of course, make the even less plausible claim that the only solution to ‘power relations’ is the abolition of private wealth and the monopolisation of all decision-making power in some unspecified public body. From a public choice standpoint, however, if the modern social democratic state is the major source of special interest power then by far the most effective way to reduce this power would be to dismantle the apparatus of anti-competitive intervention in markets. This does not require an egalitarian fantasy land where all inequality is abolished. Rather, it requires a framework of limited government where inequalities which reflect superior performance and entrepreneurial ingenuity are welcomed but where those that reflect the power of crony capitalists, crony union bosses and public sector bureaucrats are reduced to a minimum.

The third type of reaction to public choice sometimes encountered is one of denial. Faced with the argument that politics is a game where self-interested businesses, labour unions and government bureaucrats use the state to enrich themselves at public expense, some left-wingers respond by denying that this is so. Politics they say is motivated by ‘values’ and this is something that the economistic focus of public choice theory simply doesn’t take account of. I for one have a good deal of sympathy with this line of argument. It seems far too simplistic to maintain that every public policy that exists is there because of special interest forces. To suggest otherwise is to be guilty of a sort of ‘right-wing Marxism’. The problem for left-wingers who make this sort of response to public choice, however, is that it implies that many of the quasi- conspiracy theories that are often their most important mobilisation tactic have to be abandoned as well. Might it just be that that central banks and financial regulators who pursued a policy of loose money and the lowering of lending standards did so because they believed it was the ‘right thing to do’ and not because they were in the pockets of corporate bankers? If politics is really about values and ideas then perhaps we should look to the power of ‘mistaken theories’ (such as Keynesianism and Monetarism) as the cause of government failure rather than the corrupt dealings of the ‘top 1%’.

So, public choice theory poses some difficult questions for ‘the left’. If one takes an ‘interest-based’ view of politics then public choice offers a more plausible account of the way special interests seek and gain power than its leftist rivals – and of how to minimise the threat presented by such interests. If on the other hand one takes the view that ideas matter more than interests then the left is robbed of much of the ‘them versus us’ rhetoric which historically has been one of its most important vehicles of political recruitment.

I’m not clear exactly what falls within the boundaries of Public Choice, and what does not.

“Faced with the argument that politics is a game where self-interested businesses, labour unions and government bureaucrats use the state to enrich themselves at public expense, some left-wingers respond by denying that this is so. ”

Like you, I would also deny this is so, at least I would deny this is a complete account. Left wingers don’t like what they see as a right-wing attitude “government is always and everywhere bad” , and if that attitude originates in a theoretical approach that excludes any possibility of the government “doing good for its own sake” (or something similar), it’s easy to see why they object to the theory.

In some models of political economy that I encounter, there is room for the government to place some weight on social welfare, either directly (altruism, “values”) or indirectly (via wanting to win the votes of people who place some weight on social welfare). Are those models “public choice” or not, would you say?

Luis, i agree with the thrust of what you are saying. The strongest argument to make for public choice is the one from ‘behavioural symmetry’. All it is saying is that if we assume people are self-interested in market transactions then we should assume the same about their dealings in politics. Likewise, if we assume people act altruistically or at least not in a narrowly self interested way in politics – then we should also adopt a similar model of market participants. If one does the latter then many of the market-failure/public good arguments used to support govt intervention need to be modified just as much as any public choice arguments that lead to the view that govt is always captured by special interests.
What we shouldn’t do is assume that people in their political decisions people cease to be self-interested when compared to their commercial dealings.

This is interesting because I recently wrote a post on the exact same issue but arguing completely the opposite: that public choice hamstrings the right.

Firstly, I do not agree that is is superior to marxist class analysis. In right wing thought there are generally two institutions (you might even call them classes): ‘markets’ and ‘governments’. This poses a lot of problems because the two are not necessarily opposing and a social democratic government isn’t the same as a totalitarian state:

Secondly, the right refuse to apply public choice considerations to institutions they take for granted like private property, bankruptcy law and contracts. The history of capitalism offers a massive natural experiment in this, and suffice to say that PCT considerations appear to be most important when considering private property:

Thirdly, the right automatically seem to take it as a given that reducing the size of the state somehow reduces the power of big business. But this is a non-sequitur – no matter the size of the state, it will always have certain unique powers and as such can be harnessed by big business. The theory of the second best tells us that if we accept this reality, the best solution is regulatory apparatus rather than a smaller state:

Not had time to read all your links but some quick replies here.
I disagree that in ‘right wing’ thought there two classes ‘markets’ and ‘government’. Most serious classical liberals, libertarians and anarcho-capitalists recognise that there is a role for institutions in sustaining markets – through property, contract etc (see my post ‘Down with Karl Polanyi). The reason they favour limiting govt to these core functions or having them performed privately in the case of anarcho-capitalists is that if you reduce the number of things the state does then you improve the transparency of those very institutions. The reason that special interest capture is so evident in todays states is largely because they are so big – and the transaction costs for voters in monitoring what they are doing are correspondingly prohibitive. A government that does less would be easier to monitor and less prone to special interest capture. And yes, if we do not have states engage in trade policy and more disguised forms of protectionism – then that would reduce the power of big business because it would mean that markets are more competitive. Not ‘perfectly competitive’, just MORE competitive in the sense that new entrants and overseas competitors could challege incumbents without regulatory restriction.

Public choice analysis of politics seems to me much more nuanced than a Marxist focus on ‘capital and ‘labour’. It highlights varied coalitions of interests and looks at the transaction costs of organisation facing different sorts of groups – something that neo-Marxist theory doesn’t even consider – it simply assumes that if the members of a group have common interests then somehow automatically they will form an effective political force. To be fair there are some more sophistocated Marxist models which speak about ‘fractions of capital’ conveying that business is not a homgenous entityy – but these models only succeed by effectively dropping the Marxist ‘class analysis’ to become just another form of elite theory.

My point wasn’t that the right don’t advocate governments, it’s that they often *approach* things from the perspective of governments versus markets.

Is there really a correlation between large states and capture? Strikes me that the ‘New-Deal’ era was comparatively low on corruption whilst the ‘neoliberal’ era has been high. The period of worst monopoly (afaik), the 1890s, was one with few regulations, and didn’t end until the state became more active under Teddy Roosevelt.

Your idea of making markets ‘more’ competitive takes competition as unquestionably desirable and ignores the theory of the second best – taking away a restriction on pareto optimality may not be desirable if there are still other restrictions.

And ‘capital’ and ‘labour’ aren’t the only classes we can analyse. Classes are more fluid – they can coalesce, change and evolve. I find markets and government is often more restrictive.

Much of this is an oversimplification as if you are treating a few GOP talking points as the sum and substance of the thinking of “the right”. In contrast to “In right wing thought there are generally two institutions (you might even call them classes): ‘markets’ and ‘governments’” there are many institutions preferred by the right – family, church, community — to name a few; Many left-wing policies are hostile to family and church as well as to markets. As for government, there is not always a preference for markets over government; sometimes there a desire to have government over markets, merely a smaller or more local government. Finally, many on the right would prefer smaller market-formed organizations as well as smaller government.

Two points. Yes classes are much more fluid – which is why so called Marxist class theory is next to useless. Once you recognise fluidity in these relations then your are closer to elite theory or public choice theory – which was precisely my original point. Pct does not analyse ‘markets’ or ‘governments’ as classes because these are not ‘actors’ in any meaningful sense.

Where is the evidence that the ‘neo-liberal’ era has been more corrupt? If we are talking about defence contractors etc then you have a fair point about corruption – but one which has got scarcely anything to do with ‘neo-liberalism’.

With respect to the 19century – with the possible exception of railroads, most of the sectors where ‘big business’ was supposed to dominate with ‘trusts’ and ‘robber barons’ etc were characterised by falling prices and rising output. Big buisness does not/need not equate to non-competitive business – unless it is protected by regulatory restrictions on entry. There is no substitue for reading some Schumpeter on this – and for the evdience on prices in the ‘robber barons’ era Domininc Armentano on ‘Anti-trust and Monopoly’.

Marxist class analysis allows us to see states in their historical/political context, whereas for PCT states are the same across space and time. Theorists must resort to handwaving away instances like NICE, which has been pretty successful, and of course the social democratic successes of Northern Europe.

On the other hand, PCT seems like an attempt to blame the government for corruption created by capitalism (never understood this), and all states are deemed to be the same.

I wouldn’t think I’d need to state evidence. There is clearly massive cronyism going on at the moment. The history of capitalism offers us a massive exercise in public choice theory and private property – and it doesn’t look good for property, seeing as peasants were forced off their land through game laws and repossessions during the industrial revolution.

Government spending as a share of GDP was around 7% in the late 19th century – today it is over 40% and in some European countries over 50%, so perhaps if there is evidence of increased cronyism today that has something to do with it.

I suggest you read Karl Polanyi on the history of enclosures – a very left leaning source, to put it mildly, but even he doesn’t buy ‘the peasants were forced off the land argument’. Some peasants were, but it is ludicrous to claim that all property and contract have their origins in such acts.

Enjoyable post. Has any public choice theorist attempted to quantify what percentage of government spending is the result of special interest spending, as opposed to what might actually result from a Wicksellian supermajority (do I have my terms right?)?

Lee, thanks for this – and yes your terms are right. There is not to my knowledge any pct work which has sort to quantify spending in the way you suggest. My own view would be that relatively little spending is special interest dominated. By contrast a lot of regulation does have special interest effects – but the nature of regulation is such that these don’t show up as ‘spending’.

I’d be a little more sympathetic to public choice economists if they didn’t get quite so affronted when their work is turned around on them. To take a specific example, it seems to me that the British REF/RAE (and similar) research ranking exercises can readily be analysed in public choice terms – a group of academics decide what sort of research, which journals etc counts as top quality and which doesn’t, with the predictable effect that they and their institutions get the lion’s share of the research funds whilst others pursuing less favoured paths get peanuts. Yet anyone who dares to suggest that this is what they are doing, and you get squeals of outrage – they (unlike apparently almost any other interest group in society) are motivated only by the loftiest of ideals, pure scientific inquiry and disinterested decision-making. Bluntly, public choice theorists are very good at dishing out and very bad at taking it when criticism is directed at them

Jonathan,
Sorry, but I think this is silly and unsubstantiated. I am very sympathetic to pct -although with the reservations noted in the post – but I would/do absolutely oppose measures like the RAE precisely for the reasons you mention – most classical liberals/libertarians I know in the UK also oppose the RAE. Given that pct is very much a minority pursuit within mainstream economics in the UK it is stretching credulity to suggest that the exercise is some kind of stitch up controlled by pct enthusiasts. Do you have any evidence for such a claim?

Agree with this – if economists want to trumpet PCT as if politicians are self interested robots then they must apply it to themselves and suspect that their theories will be more biased to whatever tax bracket they are in, towards university funding, and will benefit interests that pay them off.

If you’ve seen inside job, well, this has happened. Also the MP society was funded by Swiss banks & insurance companies and many of the 1950-60s libertarian movement was closely linked with Rockefeller. Go figure.

Politicians, of course, are not simply self-interested robots and suggesting that Public Choice Theorists see them this way exclusively is a caricature of PCT. Yet, the assumption of self-interest is a darn good model that yields good predictions. I have no doubt that many politicians believe the dross they spout, but I also know they must pander to voters to get elected and kow tow to special interests to raise money.

Quite amusing how a post on ignorance and avoidance of public choice theory operates with such a silly view of Marxist analysis.

Marx himself does not think that individual behavior is simply determined by class membership. Maybe some Marxists do, but that is clearly not what is going on in much Marxist theory, let alone the most astoundingly obvious counterexamples to the caricature present in this article – Jon Elster and John Roemer, whose stock and trade were precisely the same game theoretic, methodologically individualist, micro-foundational approaches to power analysis.

Fair point, to a degree. Elster and Roemer are, to put it mildly, not in the mainstream of Marxist theory though. In fact I’m not sure why they consider themselves Marxists at all given that, as you say, they have a methodologically individualist approach. It is not at all clear what the concept of ‘class’ at least as most Marxists understand it does in their analysis – all the real work is done by the game-theoretic concepts which do help to explain why business interests – in certain contexts, may find it easier to overcome collective action problems. Apologies for any undue simplification – but this is a blog site.

Sure, some generality is expected on a blog, but I don’t think even more straightforwardly Marxist thinkers subscribe to the sort of simplistic class explanations of which you accuse them. The role of “microfoundations” is rather something of concern, in Marx and in many Marxists – see, for example, historical work like that of Robert Brenner. The analytical Marxists may be unique in taking up rational choice theory and, among some of them, methodological individualism, but they are not unique among Marxists in considering how large scale phenomena are grounded in individual action.

Erik Olin Wright, Andrew Levine, and Elliott Sober offer a quick take on the issue here, in an 8 page article: http://bit.ly/vZMR3N

A perhaps key quote:

“We believe instead that sloppiness and rhetorical excess is more nearly the culprit than considered, radical holist convictions. Few, if any, Marxists have ever imagined that functional relations could be established in the absence of micro-level mechanisms or that collective agents could ever be more than aggregations of individual actors. But Marxists (including Marx) have indeed failed rather frequently to trace out the implications of these (eminently sensible) beliefs.”

The concluding paragraph nicely sums up the case for, as you put it, ‘pluralist’ analysis:

“In short, the reductionist programme of methodological individualism fails because science has explanatory projects beyond the explanation of token events. Besides asking why this organism or that ﬁrm survived, we also want to explain what various objects and processes have in common. When the properties cited in answer to such questions supervene on properties at the micro-level, the explanations provided by the macro-theory will not, even in principle, be reducible to a micro-account”

[…] its competitors, then it probably will. Lessons abound for how to effectively use government. Mark Pennington writes: Having listened to me speak for an hour on the power of incumbent firms to ‘capture’ […]

The basic problem with classical liberals who indulge in Public Choice Theory investigations is that they are happy to assert things like:

“And yes, if we do not have states engage in trade policy and more disguised forms of protectionism – then that would reduce the power of big business because it would mean that markets are more competitive.”

This is thinking grounded in older, smaller, economies which produce and exchange relatively simple goods. Beinhocker – Origin of Wealth uses complexity science to give us good grounds to believe that markets run using only “core functions” tend to oligopoly. And that’s not commensurate with more competitive markets.

Actually ‘oligopoly’ is compatible with competive markets – not ‘perfect competition’ but ‘real competition’ where firms try do outdo one another on price, quality, organisational form and other dimensions. That is precisely the point that underlies Schumpeter’s emphasis on ‘creative destruction’. Facebook has substantial ‘network’ effects – but it is still a competitive business. The key point here is how much competition there is in the market as compared to how much you would get if politicians/the state ran the relevant industries. Given that to my understanding there are/have been only two parties with any chance of winning elections in the US (similar in UK) you’d be hard pressed to show that ‘democracy’ is more competitive than most markets.

You might get the impression from the Left’s concern with oligopoly that they think, absent government regulation, large corporations will press many of us into slavery. But the actual worse case scenario, from what I can tell, is that we will be “forced” to buy a small number of inferior or more expensive products. Not a scary proposition under Schumpeterian competition.

As a side note, what I am saying in my last post is that your transparency argument is largely just wrong. If we want to live in a modern society with modern trinkets like computers and the internet, then the institutions involved private or public will never be made small enough to be transparent.

That’s hard for classical liberals, because it’s a violation of one of their core axioms. So I don’t expect it to generate a productive discussion. Although if you’d like to, then the starting point is to develop an example of such transparency actually in existence in the modern world.

This is where the real questions are. PCT is simply a symptom of that axiom. If you buy into that axiom, PCT is a fact. If you are unsure, PCT looks like a sleight of hand which simply replaces corruption of government by self-interested businesses and individuals with direct tyranny of company towns, corporations and guilds. All of which there are historical examples of – and all of which contributed to the development of national governments with larger than libertarian scopes.

For evidence on the lack of transparency/ignorance in politics compared to markets I suggest reading Ilya Somin’s work. His 1998 paper in the journal Critical Review demonstrates just how much worse incentives are for voters to monitor the performance of politicians than for consumers to monitor firms in markets. He has followed this article up with another in 2010 and a book length treatment of the subject which is either out now or will be later in the year.

There are degrees of transparency. It is not true that there is a thresh-hold, after which point size makes no difference. Large government bureaucracies are less transparent to voters than corporations are to their consumers.

I don’t understand why a public choice theorist can’t be a leftist. Public choice theory offers a mere description of the political game at work. As far as I can tell it is just common sense that politicians are self-interested and that the rich and well organized will be able to have the most influence.

The left need not dispute the operation of the game to powerfully describe and decry the fact that certain players in the game–the poor–are weak while others, –the rich–are strong. The vision of the leadership of a capitalist state as a kind of committee of capitalists can easily coexist with a theory that describes how this committee of capitalists controls the political system. And the organization of the economy can still be at the structural foundation of it all, providing the conditions for capitalist control. Feel free to replace the term “capitalist” with some sub-group of capitalists who are large in resources but small in number; the economic structure may still explain why they have the resources and concentration to be the dominant players they quite evidently are.

I don’t see the necessary confrontation. Now, I certainly understand why there is a dispute about a political statement asking for a

“framework of limited government where inequalities which reflect superior performance and entrepreneurial ingenuity are welcomed but where those that reflect the power of crony capitalists, crony union bosses and public sector bureaucrats are reduced to a minimum.”

There are a lot of classical liberal and rightist ideas embedded here, of course, but your post does not address why subscribing to public choice theory as an explanation for the behavior of politicians must lead to the classical liberal policy subscriptions you offer.

At the risk of being too simplistic the reasoning – and yes it is classical liberal reasoning runs as follows: The state has more power than any other actor in society because it can compel people to behave in particular ways by taxing them and regulating them etc. It is for this reason that the rich and other groups spend so much time trying to capture the state apparatus in order to exercise a degree of power over other people that would not otherwise be possible. Without massive state intervention, the rich would still be rich, but they wouldn’t be able to cement their position by for example blocking the entry of competitors into an incumbents’ market via tariffs which prevent consumers from buying from the cheapest source – and neither would they have access to bail-outs and all manner of other subsidies. Of course, it is perhaps a little utopian of me to suggest that we can get to a state of affairs where the state ceases to engage in such activity. In my defence though I’d suggest that it is much less utopian than the claim that if only the state would simply take all the wealth from the rich rather that giving them special favours that this would somehow improve the lives of the worst off. There isn’t any country to my knowledge where those policies have improved the lives of the worst off. Even the Scandinavian countries do not engage in the sort of redistribution that the radical left favours – and Venezuela is hardly an advertisement for moving further in that direction.

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